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Agrium Inc. $27 – Toronto symbol AGU

AGRIUM INC. $27 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; SI Rating: Average) is one of the world’s largest producers of agricultural fertilizers, with plants in Canada, the United States and Argentina. The company sells its products through independent wholesalers, as well as through 500 company-owned retail outlets in the U.S. and South America.

Agrium’s revenue grew from $2.1 billion in 2001 to $3.3 billion in 2005, mainly due to acquisitions (all amounts except share price in U.S. dollars). It lost $0.06 a share in 2001 and $0.08 a share in 2002, as poor weather in North America hurt fertilizer demand. Agrium’s profits improved from $0.79 a share ($125 million) in 2003 to $2.11 a share ($283 million) in 2005. Cash flow per share more than tripled, from $1.07 in 2001 to $3.27 in 2005.

Agrium is now using its strong cash flow to expand its retail operations, which supplied 18% of its 2005 profit. Earlier this year, it paid $474 million for Royster-Clark Ltd.

The deal doubled Agrium’s U.S. retail operations, and should add $1 billion to its annual revenue. Expanding the retail business also cuts Agrium’s exposure to bulk fertilizer sales.

The company is also acquiring specialty fertilizer operations, which generate higher margins for it than its regular products. So far in 2006, it has spent $160.5 million to buy certain operations and technologies. The acquisitions increased Agrium’s longterm debt by over 50%. But it’s still a reasonable 0.5 times equity.

Agrium’s stock fell from $31 in May 2006 to $22 a month later, due to fears that wet weather in North America would delay the spring planting season and hurt earnings growth. It now trades at 18.3 times its likely 2006 profit of $1.33 U.S. a share, and at 7.8 times its projected cash flow of $3.10 U.S. a share. The $0.11 U.S. dividend yields 0.5%.

Agrium is a buy.

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